Many investors lament that the current market situation is too difficult to judge, and the fluctuations in oil prices have entered a typical long-short stalemate stage. After five trading days a week, the high and low fluctuations were about $6, but a long shadow star line was closed on the weekly chart. The intraday fluctuations reflect the distress of both the long and short sides, and the price’s many ups and downs are all false, leaving people at a loss as to what to do.
The reason for stepping out of this rhythm is that the crude oil market is currently facing complex influencing factors. In addition to the suppression of negative factors at the macro level, the relationship between OPEC and the United States has also made the market nervous. In addition, natural gas prices in Europe have fallen sharply recently and diesel prices have also begun to weaken, which has reduced market concerns about the energy crisis. Overall, it has been difficult for funds to participate in the market to take a firm stance in the past week, and oil prices have also been swinging repeatedly in this atmosphere.
However, Brent crude oil, which better reflects the global supply and demand situation, has increased significantly more than U.S. WTI crude oil. my country’s SC crude oil has basically matched the fluctuations of Brent crude oil. Relatively speaking, affected by the U.S. government’s full efforts to suppress oil prices, U.S. WTI crude oil has performed the best. Moderate, with only a slight recovery over the week. It can be seen from the monthly difference structure of the crude oil market that has picked up again after this Tuesday. After investors evaluate the changes in supply and demand in the crude oil market, they still have expectations for tight supply caused by the effect of OPEC production cuts. However, in the current market atmosphere, the U.S. midterm elections Before the outbreak, the Biden administration has a strong willingness to suppress oil prices, which has also caused the recent fluctuations in oil prices to fall into a very typical wait-and-see stage. Many funds are waiting for this critical time window before making decisions.
Data released in the latest EIA weekly report showed that U.S. oil inventories continued to decline overall in the week ending October 14, with crude oil inventories in particular falling more than expected. This also makes investors think again about the current changes in supply and demand in the crude oil market. The recovery of U.S. crude oil production this year is significantly lower than expected, and the production acceleration in the second half of the year did not appear. Before the daily crude oil production increased by 100,000 barrels per day this week and returned to 12 million barrels per day, U.S. crude oil production even fell below 1,200 barrels per day again. million barrels per day, which confuses the market. You must know that the number of new drilling rigs in the United States has continued to grow this year and hit a post-epidemic high in October. However, the recovery of U.S. crude oil production has lagged far behind expectations. Although there are constant reports that U.S. shale oil production has set new records this year, in fact such growth lags far behind the soaring oil prices. U.S. industry insiders accuse President Biden of trying to Do whatever it takes” to stop domestic oil production. This administration has fewer federal oil and gas leasing projects than any administration since World War II. At the same point in time during the Obama administration, they had 60 leases underway offshore. So far, the Biden administration has only six. The oil industry executive continued, “This administration has been swinging back and forth saying they want more production but not putting in place more policies to encourage more production.”
According to Rystad Energy research, since May this year, both drilling and completion activities in the United States have increased. This increase has brought these indicators almost back to their original peaks. However, this has not been the case for production activities. New well commissioning is a key factor in new production, but in May and June we observed a significant decline in this metric, resulting in a large gap between completion and production activity. Fewer wells coming on stream was a key reason for lower U.S. oil production levels this summer. Production performance is not only a matter of drilling activity, but also of well productivity. The data shows the development of 30-day average initial production (IP) in several tight oil basins in the United States. Initial production from key blocks in the Permian Basin continued to grow from 2016 to 2021. According to preliminary results, the basin’s initial production in 2022 has begun to decline. Average initial production from wells coming on stream in the Permian Basin during the first five months of 2022 was down 6% compared to the average of all wells drilled in 2021. As initial production declines, it becomes more difficult to increase production in the short term. There are several reasons for slower production growth in this latest recovery cycle compared to previous cycles, including bottlenecks in the service industry, more conservative E&P companies, longer time between completion and production, and declining well productivity. On the positive side, if new wells come on stream at a pace that catches up with completion activity, production could grow rapidly again.
Obviously, lower than expected U.S. oil production has a major impact on the global supply outlook. When U.S. crude oil production was slower than expected, oil prices rose sharply for five consecutive days after OPEC announced a production cut. The Biden administration was highly nervous about this. In order to control oil prices, it It has been repeatedly emphasized that it will continue to release strategic reserves. U.S. President Biden announced on Wednesday local time that the government would release an additional 15 million barrels of oil from the U.S. Strategic Petroleum Reserve. The strategic oil reserve will be replenished when the oil price is 67-72 US dollars per barrel or below.
The EIA report shows that the EIA Strategic Petroleum Reserve inventory in the United States for the week to October 14 was 1The lowest since the week of June 1, 1984, oil prices have fallen back to a certain extent in the past two weeks under the continued warnings from the United States. However, Mike Sommers, President and CEO of the American Petroleum Institute, said in an interview with the media “Biden’s decision to release strategic oil reserves again is putting the United States in a “very dangerous situation.” Today, with severe geopolitical turmoil, we are in a very unstable position,” Sommers said, “We need to Deploying strategic petroleum reserves at appropriate levels to respond to the geopolitical situation in which we currently find ourselves. “Previously, the United States also considered the option of stopping oil exports. However, judging from the fact that U.S. crude oil and refined oil exports have been significantly higher than the same period in history this year, as well as the European region’s dependence on U.S. energy supply, Europe has very little choice after rejecting Russian energy. It is difficult to lose the support of the United States. Once this option is implemented, the energy market will inevitably start a bloody storm again.
According to the current market assessment of OPEC+’s 2 million barrels/day production cut plan, as the second largest production cut in the century in 2020, this production cut will still have a clear underpinning effect on oil prices. Although the United States has expressed strong dissatisfaction with the production cuts, and oil prices have fallen significantly under the pressure of negative macro factors, the recent decline in oil prices has helped to cool down the friction between the United States and OPEC. And OPEC has repeatedly conveyed to the market that its production cuts are not political or intended to push up oil prices, but are just out of the perspective of stabilizing the crude oil market, which has buffered market anxiety.
As time goes by, the market will continue to digest the impact of the actual effects of production cuts on oil prices. At present, although the actual production reduction is about 1 million to 1.1 million barrels per day, if it is implemented in place and the EU officially implements sanctions on Russian crude oil in December, the supply side will still be subject to speculation in the future. It is not recommended to Oil prices are overly bearish. On the demand side, the United States continues to be in a seasonal decline in refining volume, and demand is acceptable. It is worth noting that China’s crude oil processing volume continues to reach new highs, and the operating rate has reached a new high since the epidemic. This will bring a significant boost to the demand for crude oil market.
The foreign exchange market experienced violent fluctuations again on Friday. The Japanese government and the Bank of Japan bought yen and sold US dollars to intervene in the foreign exchange market. This move coincided with the USD/JPY USD/JPY exceeding 151 for the first time in 32 years. Previously, the Japanese authorities once again expressed their attitude to prevent excessive changes in the yen exchange rate. The Japanese government and the Bank of Japan implemented foreign exchange intervention for the first time in 24 years on September 22, and this time it was an additional intervention. After the U.S. released September CPI data last week that continued to exceed market expectations, the market fully priced in the Federal Reserve’s 75 basis point interest rate hike in November and believed that there may be further room for further interest rate hikes. This also kept the U.S. dollar strong, but this did not happen on Friday night. There were some changes in the market. Fed Daley expressed concerns about excessive tightening and said that the Fed will reduce the rate of interest rate hikes. He said, “We will slow down the pace of interest rate increases, not suspend interest rate increases, but raise interest rates by 50 or 25 months.” base point”. Since then, the U.S. yield curve has begun to steepen. If so, the sharp flattening of the yield curve could be paused. Daley said it was important to reduce the rate hike due to uncertainty, and the problem was that the data didn’t cooperate. The spread between the 2-year and 10-year U.S. Treasury bonds has inverted by 25 basis points. In comparison, the inversion on August 10 reached 58.24 basis points, the highest level since the 1980s.
At the macro level, especially any change in the Fed’s interest rate hike expectations, is enough to trigger violent fluctuations in the financial market. The U.S. dollar fell sharply on Friday night, while risky assets including stock markets, commodities and other commodities rebounded sharply. It is expected that investors in the later period will still have repeated games between the probability of interest rate hikes at the macro level and the impact on the market caused by the slowdown in economic recession pressure. After entering November, OPEC will officially enter production cuts. After the U.S. midterm elections, the market will most likely seriously evaluate changes in supply and demand in the crude oil market again. At present, we still need to attach great importance to production cuts. Once there is an obvious supply shortage again, and with the market’s expectations for subsequent interest rate hikes loosening after the Fed’s interest rate hike in November, it is a high probability that market risk appetite will pick up. This is There are important potential changes that investors will need to prepare for in the future.
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